PDF Management Board Report on CD PROJEKT S.A. Activities in 2014
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Disclaimer This English language translation has been prepared solely for the convenience of English speaking readers. Despite all the efforts devoted to this translation, certain discrepancies, omissions or approximations may exist. In case of any differences between the Polish and the English versions, the Polish version shall prevail. CD PROJEKT, its representatives and employees decline all responsibility in this regard. 1 General information I. Key factors affecting Company performance and other important events occurring in 2014 and up until the publication date of this report 1. The Witcher 3: Wild Hunt preorder campaign launched on 5 June 2014. This was the largest such event in the Company’s history, covering three hardware platforms (PC, PlayStation 4 and Xbox One) and involving numerous retailers in 10 language zones. 2. Both CD PROJEKT RED and The Witcher 3: Wild Hunt were showcased at the Xbox One conference preceding the E3 fair. The Microsoft press conference, dedicated to presenting key upcoming releases for the Xbox One console, included a six-minute gameplay trailer of The Witcher 3: Wild Hunt. 3. Throughout 2014 CD PROJEKT RED enjoyed a strong presence at key international trade fairs. The game was showcased at E3 in Los Angeles, at Gamescom in Cologne and at Comic Com in San Diego, The Witcher 3: Wild Hunt was also presented at the British EGX2014 videogame fair, at Games 14 in Saudi Arabia, at Pax Prime in Seattle, at Igromir in Moscow (Russia’s largest videogame and comic book fair) and at Brasil Game Show 2014 in Sao Paulo. 4. At the beginning of 2015 The Witcher 3: Wild Hunt received two Most Anticipated Game of 2015 awards, respectively from readers of the well-known American Gamespot portal and participants of The Game Awards survey whose results were announced at a gala event in Las Vegas. 5. Up until the publication date of this report The Witcher 3: Wild Hunt has received over 200 awards from the world’s top gaming media and online services. In addition to the awards mentioned above, The Witcher 3 was also named the Most Anticipated Game by IGN (readers’ poll), Eurogamer (readers’ poll), GameTrailers, The Escapist and The Angry Joe Show. The game has been featured on more than 75 printed magazine covers. 6. By the end of 2014 the Company concluded the publisher selection process in all markets where retail editions of The Witcher 3 will be sold. The game is slated for release in 109 countries. 7. On 8 December 2014 the Company announced that it had postponed the release of The Witcher 3: Wild Hunt until 19 May 2015. 8. In Janury 2015, after the close of the reporting period, the Company held the first of several hands-on preview sessions where Polish and foreign journalists were given several hours to play The Witcher 3 beta on Xbox One, PlayStation 4 and the PC. Altogether more than 300 journalists from 23 countries gained first-hand experience with the game. The event resulted in several hundred publications. 9. The first issue of “The Witcher House of Glass”, published by Dark Horse Comics in collaboration with CD PROJEKT RED, was released on 19 March 2014 in American bookstores and digital distribution channels. The entire cycle, comprising five issues, was published in the USA, Poland, Russia, Germany, the Czech Republic, Spain, Turkey and Italy. 10. On 22 May 2014 the Studio released The Witcher 2: Assassins of Kings for the Linux OS. 11. November 2014 marked the release of The Witcher Adventure Game, developed in collaboration with Fantasy Flight Games – a global leader in the development and distribution of board games. Physical and digital editions of the game were released simultaneously. 12. On 22 January 2015 the Company debuted on the mobile gaming market with The Witcher Battle Arena, developed in collaboration with an external development studio. The Witcher Battle Arena is an online multiplayer F2P title available for iOS and Android devices. In February 2015 the Company announced that during the first three weeks following release the game had been downloaded over 1 million times. 13. In June 2014 GOG Ltd. paid out a dividend in the amount of 2.7 million USD to its sole shareholder – CD PROJEKT S.A. 14. In late November 2014 CD PROJEKT S.A. sold the controlling stake in its cdp.pl subsidiary, reducing its capital share in cdp.pl to 8.29%. As a result effective control over cdp.pl was transferred to long-time employees and current members of the company’s management board. 15. Sales revenues of CD PROJEKT S.A. in 2014 amounted to 34 455 thousand PLN. 16. EBITDA of CD PROJEKT S.A. in 2014 was 1 381 thousand PLN. Management Board report on CD PROJEKT S.A. activities between 1 January and 31 December 2014 2 17. The Company registered a net loss of 12 407 thousand PLN in 2014. 18. As of 31 December 2014 the Compny held cash assets valued at 12 947 thousand PLN (including cash equivalents), in addition to other financial assets valued at 2 745 thousand PLN. The latter group comprises PKO investment fund shares purchased as a means of temporary allocation of surplus cash. Management Board report on CD PROJEKT S.A. activities between 1 January and 31 December 2014 3 ¢ Summary of business activities in the 2014 fiscal year Videogame development is the main area of activity of the CD PROJEKT RED Studio, a subsidiary of CD PROJEKT S.A. The activity covers creation of videogames, licensing the associated distribution rights and producing tie-in products which exploit the commercial appeal of brands owned by the Company. Videogame development commenced in 2002 and initially focused on the studio’s RPG debut: The Witcher. This game, set in Andrzej Sapkowski’s fantasy world, was released in 2007 to global acclaim. The Studio followed up in May 2011 with its second release – The Witcher 2: Assassins of Kings for the PC. In April 2012 an extended edition of The Witcher 2 was released on the PC and Xbox 360. Both parts of The Witcher series are now also available for Apple and Linux machines. The Company carries out active distribution of its earlier games (The Witcher and The Witcher 2) for a number of hardware platforms, using traditional and digital distribution channels. Taken together, both installments of the series have received over 200 awards and sold more than 8 million copies. The Studio is currently working on two triple-A RPG releases: The Witcher 3: Wild Hunt and Cyberpunk 2077. Each of these games is slated for simultaneous release on the PC and current-generation gaming consoles: Sony PlayStation 4 and Xbox One. In July 2013 the Studio established a presence in Kraków, with a dedicated branch set up on the premises of the Kraków Technology Park to carry out work on additional videogame projects. In addition to ongoing work on The Witcher 3 and Cyberpunk 2077 the Company is expanding its core franchise with additional tie-in products set in The Witcher universe. Throughout 2014 CD PROJEKT RED focused on two tie-in products developed in collaboration with external partners. In November 2014 CD PROJEKT RED released The Witcher Adventure Game in both physical (board) and digital editions (for PCs and tablets). On 22 January 2015, after the close of the reporting period, the Company released its pioneering mobile online game – The Witcher Battle Arena, available for tablet devices and advanced smartphones running the iOS and Android operating systems. CD PROJEKT S.A., which is the holding company of the CD PROJEKT Capital Group, strives to achieve maximum efficiency and synergy in the scope of actions carried out by the Group. To this end, the internal Investment department assists other operating segments of the Group in matters related to corporate and financial oversight, accounting, HR, legal advice (particularly concerning taxation) and investor relations. ¢ Key events occurring in 2014 Videogame development By the end of 2014 all distribution contracts covering physical editions of The Witcher 3: Wild Hunt had been concluded. In January the Company announced that it had reached an agreement with Namco Bandai Games concerning exclusive distribution rights for The Witcher 3 in Australia and New Zealand. In February the Company signed a contract with Agora S.A., making Agora a co-publisher of The Witcher 3 in Poland. Domestic distribution rights were retained by cdp.pl Sp. z o.o., a subsidiary of the Group. In March 2014 the Company confirmed that marketing and distribution activities in the Middle East would be handled by LS2 Pluto, a leader in videogame distribution in this region. LS2 Pluto has a presence in the United Arab Emirates, Saudi Arabia, Qatar, Kuwait, Liban, Bahrain, Jordan and Egypt, among others. In South Africa the game will be distributed by Megarom Interactive – a key importer and distributor of videogames on the South African market. In addition, the Company signed agreements with 1C-SoftClub concerning distribution and promotion of the game in Russia and the CIS countries. Distribution rights in the Czech Republic, Slovakia and Hungary were licensed to CENEGA, while Brazil and Latin America will be handled by NC Games. In Q3 2014 contracts were concluded with Best Distribution (covering marketing and sales of the game in Romania), Edlee (Israel), Express Games (India), Epic Soft (Taiwan, Hong Kong and Singapore), Bilkom (Turkey) and Computerland/Iris Mega DOO (the Balkans). It should be noted that none of these contracts cover high-markup digital sales, the sole rights to which were retained by CD PROJEKT. The closing days of Q1 2014 saw the debut of the first installment in The Witcher House of Glass comic book series, published by the American company Dark Horse Comics in collaboration with CD PROJEKT RED.